Senators Unveil Bill to Ban Banks' High-Risk Trades

March 10, 2010

WASHINGTON-Two
senators introduced legislation Wednesday echoing calls from the Obama
administration to bar taxpayer-insured banks and their affiliates and
subsidiaries from engaging in proprietary trading.

The bill,
sponsored by Sens. Jeff Merkley (D., Ore.) and Carl Levin (D., Mich.), is
designed to "make banking boring again," according to a summary.

President Barack
Obama proposed the "Volcker Rule," named after former Federal Reserve
Chairman Paul Volcker, in January as the administration sought new ways to
crack down on risk and size at financial companies.

Messrs. Merkley
and Levin's measure is stronger than what is likely to emerge from the Senate
Banking Committee in the form of a broader financial overhaul. Committee
members, locked in discussions about how to rewrite financial rules, are
expected to water down the Volcker Rule by giving more discretion to
regulators.

It is unclear how
Messrs. Merkley and Levin's measure will play into the broader financial
regulatory rewrite. "This is the time to have the debate," said Mr.
Merkley, who is a member of the committee. Mr. Levin isn't.

Whatever
financial package emerges from the talks among Chairman Christopher Dodd (D.,
Conn.) and other lawmakers, it will be debated formally by the committee,
giving members like Mr. Merkley the chance to offer their proposals as
amendments.

"The
circumstances on the ground put the issue before us. Commercial banks are now
tied into highly risky investment houses," Mr. Merkley said Wednesday.

In addition to
banning high-risk trades, Messrs. Merkley and Levin's bill also would prohibit
covered entities from investing in or sponsoring a hedge fund or private-equity
fund.

The bill would
direct regulators to rein in high-risk trading for covered firms in a number of
areas, including purchasing and selling government obligations, underwriting
and market making to serve clients, and mitigating hedging activities.